How Government Killed Uganda Telecom: The Untold Story

Fresh details have emerged on how Uganda Telecom Ltd (UTL), one of the oldest telecom firms in Uganda became heavily indebted and ‘technically insolvent’.

According to the  latest report by Parliament’s ‘Select Committee on UTL on the Management and Performance of UTL’ obtained by Business Focus, the government of Uganda played a big role in the collapse of UTL.

Dated May17, 2017, the report notes that government’s decision to divest UTL was the beginning of UTL’s current woes after it negotiated a ‘bad’ deal. This after UTL had experienced capital challenges.

In February 2000, the government of Uganda got a strategic partner in the name of UCOM Ltd that bought 2,040,000 ordinary shares of UTL at US$33.52m from the Government of Uganda (GoU). This meant that UCOM became a majority shareholder with 51%, while the GoU became a minority shareholder with 49%.

The report reveals that some of the agreements signed between the majority shareholder and GoU were not favourable to Uganda.

“For instance, the Shareholder Agreement and Technical Assistance and Commitment Agreement gave a lot of powers to the majority shareholder (UCOM) in making major decisions such as hiring of key managers, provision of technical assistance and borrowing loans for the company,” the report reads in part.

It adds that between 2002 and 2006, under the cover of Technical Assistance and Commitment Agreement, UCOM hired 10 top managers, including the Managing Director.

During this time (five years), the Managing Director was being paid US$28,000 (Shs101.6m going by the current exchange rate) per month, while the other nine managers were being paid US$25,000 (Shs90.7m at the current exchange rate) each per month.

Unfortunately, during this period, the company was making terrible losses.

The report adds that the team hired was inexperienced and incompetent, lacking basic corporate management skills.

“There was no effective communication in the organization and the management was borrowing money from banks without the knowledge of the minority shareholder (GoU),” the report notes.

The report observes that the Uganda government representatives on the UTL Board (the Board and his other colleagues), the Attorney General and Managers in the company should have averted this by advising the GoU to take action and act on the state of affairs of UTL.

“They failed and therefore, they stand responsible for this great loss and mess in the company,” the report adds, noting that most of the agreements have since expired but the company continues to use them without renewal.

“For instance, the shareholder agreement expired in 2005, but the company continued using it to date without renewal,” the report observes.

The last straw that broke UTL’s back was in 2007 when the GoU of Uganda agreed to add more 18% of its shares to UCOM. This meant UCOM share rose to 69% and those of the GoU reduced to 31%.

This arose after the GoU failed to raise its share of the equity when a capital call for US$26.4m was made to invest in UTL network.

The Committee was informed that the GoU of Uganda “couldn’t use the funds on the Divestiture Account to pay its share of the  equity due to the ‘need to support the Energy Sector as well as attachments of the Divestiture Account by the terminal benefits claimants’,” the report reveals.

Therefore UCOM injected all the required capital in return for 2,322,581 ordinary shares from the GoU, the minority shareholder.

However, in March 2007, LAP GreenN, a subsidiary of Libya Africa Investment Portfolio, a company owned by the Government of Libya, acquired 69% shareholding in UTL after buying into UCOM.

However, the Committee report observes that there’s no evidence in the Company Registry showing that UCOM sold its shares to LAP GreenN. Indeed, it is UCOM that earlier this year pulled out of the heavily indebted UTL. The company is indebted to the tune of over Shs700bn.

Huge Losses Recorded

Since 2007, the company has reported heavy losses despite massive borrowings. According to the report UTL recorded losses of Shs16.21bn in 2008, Shs11.86bn in 2009, Shs69.26bn in 2010, Shs145.63bn in 2011, Shs27.67bn in 2012, Shs59.91bn in 2013 and Shs229.51bn in 2014.

The report notes that UTL would have been closed long ago by Uganda Communications Commission after breaching a number of laws, but the Government has been intervening severally, appealing to UCC to give UTL sometime as a turnaround strategy is being sought.

“UCC informed the Committee that UTL was technically insolvent and was heavily indebted to the operators and had failed to meet the quality of service required in the telecommunication sector,” the report reveals.

It is worth noting that Budadiri East MP, Nandala Mafabi on November 17, 2016 tabled a statement on the floor of Parliament, highlighting how UTL was heavily indebted and mismanaged.  Parliament resolved to form a Select Committee to investigate what Mafabi tabled.

UTL has since been placed under receivership.